The Straits Times Index lost 39 points week-on-week, ending the third week of January at 3,152. Since the breakout level was at 3,150, support should materialise soon. The problem for the STI is that is being buffetted by the Hong Kong and mainland China stock sell-off.
As at end-December, only around 32.97% of the Hang Seng Index comprised of traditional Hong Kong companies such as HSBC, which remains the largest component with a weightage of 8.61%. Other Hong Kong companies in the index include SHK Properties, Cheung Kong Holdings, Link REIT, Hang Seng Bank, CK Asset, and MTR Corp. In general the Hong Kong companies are banks, property-related and conglomerates. Alibaba, Tencent, China Construction Bank, Meituan and China Mobile rank among the top 10 stocks with the higheset weightage. Within the top 10, only HSBC, AIA and Hong Kong Exchange feature as Hong Kong stocks.
On June 17, the Hang Seng Index lost 3.17% in a single session with a surge in volume which may indicate climactic selling. Since then it has attempted to rebound. Both short and medium-term indicators remain at oversold lows. However, they have yet to form positive divergences with the index.
According to technical analysis orthodoxy, benchmark highs and benchmark lows are levels providing resistance and support respectively. They are important because markets are likely to remember these levels. For the Hang Seng Index, its 10-year low was 14,597, suggesting that the low isn’t far off, and at the very least a better rebound should be materialising as oversold pressures build.
The US risk-fee rate, which is the yield on the 10-year US treasuries rebounded to 4.14%. The yield may encounter resistance at this level, limiting the upside and raising the prospect for a retreat.
